Wachovia's burned bridges

America Wants To Know picked up a telephone message last Wednesday from a polite man identifying himself as representing Wachovia Securities in Los Angeles.

"Ms. Shelley, we have a limited number of CDs put out by Capital One that pay 4% interest," he said politely, "we thought this is something that might interest you."

He politely left his phone number and politely wished us a great day.

What's this?

Times are tough in the securities industry if brokers are cold-calling us to sell CDs.

Why is Wachovia selling Capital One's CDs, anyway? Is Capital One paying brokers to go out into the wild and drag money back to the company balance sheet before Ben Bernanke and the cops show up?

And why do Wachovia employees have to cold-call people in the phone book to sell these wonderful CDs, limited in number?

We'll take a wild guess.

Either they don't want to burn their regular customers by selling them something that no one should buy, or they already did.

Wachovia Securities is one of the companies that burned its customers with enticing pitches for auction-rate securities, which were allegedly sold to investors with a promise that they would be as liquid as cash. What a rude surprise it was in February when the weekly auctions for the things ended with no buyers, and then no one could unload them at any price.

In July, the Missouri Secretary of State's securities division raided Wachovia Securities' headquarters in St. Louis, grabbing documents and records related to the sale of auction-rate securities.

Wachovia also profited from the merry business of selling creative home loans to people who couldn't afford the homes they were buying. On September 27, a Bloomberg News story about the forced sale of Washington Mutual reported that WaMu was "the second-biggest provider of payment-option adjustable-rate mortgages, behind Wachovia Corp."

One week ago, the FDIC, the Federal Reserve and the Treasury Secretary used an obscure authority under a 1991 law to force Wachovia into a highly unfavorable sale to Citigroup. Regulators said they observed a "silent run" on the bank last Friday as large depositors withdrew their money to bring their accounts under the $100,000 FDIC insurance limit. The Charlotte Observer reported that officials feared Wachovia would not be able to obtain loans from other banks to cover more withdrawals on Monday. Wall Street analysts had reassessed Wachovia's losses after JPMorgan got a look inside Washington Mutual's books.

Maybe that's all unrelated to the phone call on Wednesday.

We don't understand much about the securities business, or banking.

We don't understand why federal regulators are trying to block Wells Fargo from using its own money to pay more for Wachovia than the forced-sale price Citigroup agreed to pay last weekend in a complicated deal that requires taxpayers to cover $270 billion in prospective losses.

We don't even understand why the banks spent all that money on bulletproof glass. The robbers are always on the payroll.


Copyright 2008

Editor's note: You might be interested in the earlier post, "Train Wrecks".

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